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Informal Borrowing Most Recent 'Informal' Loan Sought Car Dealership Employer Community or Church Government Payday Loan Friend Family Member "Loan for Interest"

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Credit Sources for LMI Households

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Quick Highlights: Tax Prep & RALs  66% of low- and moderate-income tax filers used a paid preparer to file.  About 38% of all LMI taxpayers using a paid preparer took out a RAL.  51% of unbanked use RAL vs. 31% others  50% of EITC filers use RAL vs. 14% others  RAL users paid $177 for tax preparation & RALs, which represents 7% of the average refund of such households ($2,505).

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Quick Highlights: Home Mortgages  Broker Usage 58% used a mortgage broker Of those using a broker, only 33% were offered loans from more than one lender  29% paid points or fees up front Blacks pay times the points & fees whites pay  “High Cost” mortgages held by 55% of HH Include high APR, balloon payment, prepayment penalty 63% for blacks, 46% for whites  When “high cost” mortgages also include ARM, 62% of LMI HH hold such mortgages 70% for blacks, 51% for whites

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Quick Highlights: Payday loans (2)  Common risks associated with payday loans are to delay/rollover payment, which 40% did.  On average, borrowers rolled over 4 times.  14% took a loan from one payday lender to pay back a loan to another payday lender.  Payday borrowers have lower asset levels (especially homes) than non-borrowers

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AFS Complementary Products AFSWhat % of users use payday? What % of non-users use payday? Pawnshop*16%3% Cash Advance*14%4% RAL*9%3% Rent-to-Own*16%4% Cash out Pension*12%4% Overdraft*13%2% Among those using other AFS/not using other AFS, what % use payday? *Significant difference at 10% level after controlling for age, race, gender, and income

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Credit Card Behaviors and Payday Use Late FeeNo Late Fee 9.2%3.4% Never pay off balance Always pay off balance 8%3.6% Pay minimum* Pay More 12.5%3.8% Secured CC*Credit Card 17.4%3.3% Among those with noted credit card behavior, what % use payday? * Significant difference at 10% level after controlling for age, race, gender, and income

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Loans From Traditional Sources  In the last three years, looked into loan: 22% from a bank 14% from a finance or mortgage company 13% from a credit union 4% from a savings and loan  29% were turned down for a loan 7% were approved but given smaller amount  36% compared lenders (median=3)  Median APR was 7.5%

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Loans from Other Sources  In the last three years, looked into loan 32% from a family member 22% from a friend 12% from car dealership 5% from government loan fund 4% from payday lender 3% from employer 1% from community or church loan fund <1% from a loan shark  9% of these loan requests were turned down

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Credit Cards  41% of the sample has a credit card 53% of whites, 35% of blacks  21% of those without a CC want one but cannot get one  46% of those without a CC have had one in the past  9% of credit cards are secured  Median # of cards = 2 (mean=2.8)  2/3 know their APR, median=13%  27% pay an annual fee  22% paid a late fee  The interest rate changed for 35% of the sample 61% knew that the rate could change  15% have transferred a balance from one card to another

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Credit Card Payments  31% pay off the entire balance every month  29% never pay off the entire balance  18% usually pay the minimum amount  Median amount owed = $1,000, mean=$3,233  We asked: if you only pay the minimum due, would the amount you owe Go down: 25% Stay the same: 29% Go up: 46%  15% of the sample has declared bankruptcy at some point  4% have declared in the past 12 months

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Financial Services Policy  Encourage low-cost, electronically-based bank accounts with a new tax credit for depository institutions Pay for performance, fixed cost per account Administered by IRS & FMS using adjustments to quarterly withholding payments Can include incentive for matched savings plans provided by financial institutions, funded by Treasury Can include option of self-amortizing, 6 month credit product with direct debit after seasoning period No overdraft, no check-writing, no chexsystem screen  IRS should deposit tax refund to opt-out, privately offered e-bank accounts for the unbanked  State EBT to move beneficiaries into banking system  Federal Reserve role in sponsoring payments system improvements (as in Directo a Mexico)